Controversy has broken out over recent calls to retire an industry term going back to the 1930s.

Calls for the “broker-dealer” term to be retired because it is allegedly out of date and no longer accurately explains what firms do are unwarranted, according to a senior business figure in the US. 

A few days ago, James Poer, the chief executive of US-based Kestra Financial, argued in these pages that “broker-dealer” is a term destined for the junkyard (see that item here).

He wrote: “I propose that we remove the term “independent broker-dealer” from our vocabulary and instead refer to these firms as “independent financial services platforms,” a classification that better reflects all that we do now and will do in the future to serve financial advisors and investors.”

The article prompted pushback. Michael Zeuner, member of the board and co-founder of the Institute for the Fiduciary Standard, and Knut A Rostad, president and co-founder, strongly dispute Poer’s contention. 

“What makes a firm a RIA [Registered Investment Advisor], and thus eligible for placement on the top RIA lists, is that under SEC [Securities and Exchange Commission] rules, a RIA must adhere to a fiduciary standard and put client interests ahead of firm interests at all times. Independent broker/dealers are often dual registered - with both a broker dealer and an RIA license - which rather than requiring them put client interests first, gives them the ability to choose when they will and when they won’t,” they said.

“Thus all that Mr Poer has done is shed light on the ongoing practice of those in the financial services industry to muddy the waters and confuse investors,” the continued.

Arguments about such names come amid a perceived sea-change in North American wealth management, with developments such as the new US Department of Labor Fiduciary Rules pushing clients towards fee-based advise and away from commission-based remuneration. Meanwhile, this publication has heard that even terms such as “private bank” have been queried by those saying that financial privacy has been under relentless assault and transparency is now seen as the goal, if not the reality. 

The Institute for the Fiduciary Standard’s Rostad and Zeuner continued: “The simple fact is compensation forms do not determine fiduciary status; adherence to duties of loyalty and care do. Rather than muddy the waters, our proposal is simple. Adhering to fiduciary duties and putting client interests first can be evidenced by adopting a set of simple conduct practices that embody the essence of the fiduciary conduct.”

“The Institute for the Fiduciary Standards’ Best Practices require that advisers, among other items, act as a fiduciary at all times, put agreements in writing, show clients what they pay and firms get in all fees in dollars, doggedly avoid conflicts – or mitigate them, control expenses and have the necessary education and knowledge. Further Best Practice advisors must post the twelve Best Practices on their website and tell investors on Form ADV they adhere to them,” they said.

The men concluded by inviting firms, regardless of how they described themselves or get paid, to pledge to uphold “these best practices and to evidence that affirmation by putting notice of their adherence to these practices in their form ADV”. 

“An investor, looking for an advisor who will put their interests first and adopt fiduciary principals, can cut through the clutter and look for firms - irrespective of their label or compensation system - that have affirmed their adherence,” they added.